PPR, the Paris-based conglomerate, saw its stock price drop after Credit Suisse analyst Tony Shiret downgraded the stock from "outperform" to "neutral" in his analyst report released yesterday. Shiret reduced his target price for PPR stock by 27% from 144 euros to 105 euros and the stock closed at 110.63 euros in Paris, down 4% for the day and the lowest price since January. According to Shiret
The group is becoming less, rather than more, strategically focused. We continue to feel uneasy about the widening scope of the business.
Shiret noted that as he tried to do forecasts for PPR going forward, he was struck by how many parts there are to the business. In particular, the report singles out Redkats, Conforama and United Retail as underperforming businesses that are dragging down earnings. Adding to the confusion are persisting reports about a forthcoming PPR acquisition of Clarins, as reported on The Business of Fashion last week. Some analysts say another acquisition is the last thing PPR needs.
With a wide range of existing businesses, the conglomerate curse might be slowing PPR down, especially as it is not a "pure play" in any one sector. Some investors prefer to diversify investments on their own rather than invest in a conglomerate with its own diverse set of businesses. As such, the PPR business may benefit from focusing more on its luxury and fashion businesses (Gucci, Bottega Veneta, Balenciaga, etc), while shedding some of the unrelated businesses which seem to be confusing some analysts and investors.
Earlier this year, PPR's acquisition of Puma was lauded by many industry observers, but more recently, others have questioned whether this acquisition makes sense and whether it would fit with luxury. I still believe this acquisition could be strategically positioned as an integral part of a more focused luxury and fashion conglomerate, but gaining that focus will have to mean losing some of the peripheral businesses.
PPR organisation structure graphic courtesy of PPR website.